I hate it when pundits claim that the Fed is behind everything that happens in financial markets. I call this the Fed attribution error. In Tamny's case, it is compounded by using the price of gold as an indicator, a practice that I view as the economic equivalent of astrology.

Just as Douglass North sees the world as filled with challenges for establishing property rights and monitoring behavior (challenges that give rise to institutions such as corporations, contracts, standards, etc.), I see the world as filled with challenges for allocating financial risk. People with savings constantly have to be buying securities without knowing exactly the underlying risks.

We absolutely do not live in a Modigliani-Miller world of perfectly transparent financial intermediation. As an insurance company or a venture capitalist, my techniques for evaluating and managing risk are proprietary. The underlying risks that I take are never going to be perfectly transparent to my investors.

What we are seeing in the housing market is not some astrological misalignment of the constellations of interest rates and gold prices. What we are seeing is some innovative risk-assessment and risk-transfer mechanisms that blew up.